Press Release

Saul Centers, Inc. Reports Second Quarter 2018 Earnings

Company Release - 8/3/2018 4:08 PM ET

BETHESDA, Md., Aug. 3, 2018 /PRNewswire/ -- Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2018 ("2018 Quarter"). Total revenue for the 2018 Quarter increased to $56.3 million from $55.9 million for the quarter ended June 30, 2017 ("2017 Quarter"). Operating income, which is net income before the impact of change in fair value of derivatives, loss on early extinguishment of debt and gains on sales of property and casualty settlements, if any, increased to $15.4 million for the 2018 Quarter from $14.4 million for the 2017 Quarter.

Net income available to common stockholders increased to $9.6 million ($0.43 per diluted share) for the 2018 Quarter from $8.4 million ($0.38 per diluted share) for the 2017 Quarter.

Same property revenue increased $0.7 million (1.2%) and same property operating income increased $0.1 million (0.3%) for the 2018 Quarter compared to the 2017 Quarter. We define same property revenue as property revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods. We define same property operating income as property operating income minus the results of properties which were not in operation for the entirety of the comparable periods. Shopping Center same property operating income for the 2018 Quarter totaled $32.3 million, a $0.1 million increase from the 2017 Quarter. Mixed-Use same property operating income totaled $10.3 million, unchanged from the prior year.

As of June 30, 2018, 94.0% of the commercial portfolio was leased (not including the residential portfolio), compared to 94.3% at June 30, 2017. On a same property basis, 94.0% of the commercial portfolio was leased as of June 30, 2018, compared to 95.6% at June 30, 2017. As of June 30, 2018, the residential portfolio was 98.6% leased compared to 96.7% at June 30, 2017.

For the six months ended June 30, 2018 ("2018 Period"), total revenue decreased to $112.8 million from $114.4 million for the six months ended June 30, 2017 ("2017 Period"). Operating income decreased to $30.4 million for the 2018 Period from $31.8 million for the 2017 Period. The decrease in operating income was primarily due to (a) the net impact of terminating leases for the spaces previously occupied by Safeway at Broadlands and Kmart at Kentlands ($3.6 million), partially offset by (b) increased capitalized interest ($1.0 million), and (c) an increase in residential rent ($0.7 million).

Net income available to common stockholders decreased to $16.4 million ($0.74 per diluted share) for the 2018 Period compared to $19.0 million ($0.87 per diluted share) for the 2017 Period. The decrease in net income available to common stockholders was primarily due to extinguishment of issuance costs upon redemption of preferred shares ($2.3 million).

Same property revenue decreased $1.2 million (1.1%) and same property operating income decreased $2.7 million (3.1%) for the 2018 Period, compared to the 2017 Period. Shopping Center same property operating income decreased 4.0% and mixed-use same property operating income decreased 0.3%. Shopping Center same property operating income decreased primarily due to (a) the net impact of terminating leases for the spaces previously occupied by Safeway at Broadlands and Kmart at Kentlands ($3.6 million), partially offset by (b) an increase in base rent ($2.3 million).

Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $23.8 million ($0.79 per diluted share) in the 2018 Quarter compared to $23.0 million ($0.78 per diluted share) in the 2017 Quarter. FFO for the 2018 Quarter increased primarily due to lower interest and amortization of debt expense. FFO, a widely accepted non-GAAP financial measure of operating performance for REITs, is defined as net income plus real estate depreciation and amortization, excluding gains and losses from property dispositions and impairment charges on real estate assets.

FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and the impact of preferred stock redemptions) decreased 8.8% to $44.4 million ($1.48 per diluted share) in the 2018 Period from $48.6 million ($1.66 per diluted share) in the 2017 Period. FFO available to common stockholders and noncontrolling interests decreased primarily due to (a) the net impact of terminating leases for the spaces previously occupied by Safeway at Broadlands and Kmart at Kentlands ($3.6 million) and (b) extinguishment of issuance costs upon redemption of preferred shares ($2.3 million), partially offset by (c) higher base rent ($1.9 million).

Saul Centers, Inc. is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 59 properties which includes (a) 49 community and neighborhood shopping centers and six mixed-use properties with approximately 9.2 million square feet of leasable area and (b) four land and development properties. Over 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

Saul Centers, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

June 30, 2018

December 31, 2017

(Unaudited)

Assets

Real estate investments

Land

$

450,256

$

450,256

Buildings and equipment

1,263,865

1,261,830

Construction in progress

139,285

91,114

1,853,406

1,803,200

Accumulated depreciation

(507,084)

(488,166)

1,346,322

1,315,034

Cash and cash equivalents

6,425

10,908

Accounts receivable and accrued income, net

50,634

54,057

Deferred leasing costs, net

27,139

27,255

Prepaid expenses, net

1,669

5,248

Other assets

14,293

9,950

Total assets

$

1,446,482

$

1,422,452

Liabilities

Notes payable

$

869,272

$

897,888

Revolving credit facility payable

23,065

60,734

Term loan facility payable

74,543

—

Dividends and distributions payable

18,599

18,520

Accounts payable, accrued expenses and other liabilities

29,078

23,123

Deferred income

25,594

29,084

Total liabilities

1,040,151

1,029,349

Equity

Preferred stock

180,000

180,000

Common stock

223

221

Additional paid-in capital

361,413

352,590

Distributions in excess of accumulated net income and accumulated

other comprehensive loss

(204,689)

(198,406)

Total Saul Centers, Inc. equity

336,947

334,405

Noncontrolling interests

69,384

58,698

Total equity

406,331

393,103

Total liabilities and equity

$

1,446,482

$

1,422,452

Saul Centers, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Property revenue

(unaudited)

(unaudited)

Base rent

$

45,943

$

45,575

$

91,810

$

90,051

Expense recoveries

8,601

8,337

17,373

16,931

Percentage rent

249

519

667

901

Other property revenue

1,431

1,466

2,769

6,467

Total property revenue

56,224

55,897

112,619

114,350

Property expenses

Property operating expenses

6,732

6,473

13,856

13,125

Provision for credit losses

143

207

429

550

Real estate taxes

6,778

6,700

13,622

13,290

Total property expenses

13,653

13,380

27,907

26,965

Property operating income

42,571

42,517

84,712

87,385

Other revenue

69

10

170

23

Other expenses

Interest expense and amortization of deferred debt costs

11,237

11,900

22,764

23,764

Depreciation and amortization of deferred leasing costs

11,351

11,691

22,700

23,033

General and administrative

4,647

4,514

9,068

8,815

Total other expenses

27,235

28,105

54,532

55,612

Operating income

15,405

14,422

30,350

31,796

Change in fair value of derivatives

(12)

(1)

(12)

(1)

Gain on sale of property

509

—

509

—

Net income

15,902

14,421

30,847

31,795

Income attributable to noncontrolling interests

(3,359)

(2,911)

(5,718)

(6,581)

Net income attributable to Saul Centers, Inc.

12,543

11,510

25,129

25,214

Extinguishment of issuance costs upon redemption of preferred shares

—

—

(2,328)

—

Preferred stock dividends

(2,953)

(3,094)

(6,356)

(6,188)

Net income available to common stockholders

$

9,590

$

8,416

$

16,445

$

19,026

Per share net income available to common stockholders

Basic and diluted

$

0.43

$

0.38

$

0.74

$

0.87

Weighted Average Common Stock:

Common stock

22,260

21,846

22,219

21,796

Effect of dilutive options

28

81

34

114

Diluted weighted average common stock

22,288

21,927

22,253

21,910

Reconciliation of net income to FFO available to common stockholders and

noncontrolling interests (1)

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except per share amounts)

2018

2017

2018

2017

(unaudited)

(unaudited)

Net income

$

15,902

$

14,421

$

30,847

$

31,795

Subtract:

Gain on sale of property

(509)

—

(509)

—

Add:

Real estate depreciation and amortization

11,351

11,691

22,700

23,033

FFO

26,744

26,112

53,038

54,828

Subtract:

Extinguishment of issuance costs upon redemption of preferred shares

—

—

(2,328)

—

Preferred stock dividends

(2,953)

(3,094)

(6,356)

(6,188)

FFO available to common stockholders and noncontrolling interests

$

23,791

$

23,018

$

44,354

$

48,640

Weighted average shares:

Diluted weighted average common stock

22,288

21,927

22,253

21,910

Convertible limited partnership units

7,726

7,497

7,646

7,476

Average shares and units used to compute FFO per share

30,014

29,424

29,899

29,386

FFO per share available to common stockholders and noncontrolling interests

$

0.79

$

0.78

$

1.48

$

1.66

(1)

The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding impairment charges on real estate assets and gains or losses from property dispositions. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Company's Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what the Company believes occurs with its assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.

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